Square, BitGo, And Cyclebit: The State Of Crypto Payments

The following is a contributed article from a content partner of Benzinga

Discussions surrounding cryptocurrency payment platforms have captured the attention of investors worldwide, specifically on whether digital currencies are useful in the retail sector. For instance, the growth and widespread adoption of ‘stable-coins’ has nudged 20,000 merchants to accept crypto payments. The list of parties interested in crypto-transactions, however, is not merely limited to small businesses; we have seen that corporations like Microsoft, Overstock, Namecheap, Starbucks, Whole Foods, CheapAir, Travala, and Expedia have all shifted their attention.

The $250 Billion crypto payment market, though broad, can be best understood by examining three major categories: P2P Retail Payments, Crypto Custody, and Merchant Plugin and Gateways.

Square’s Cash App - A Leader In P2P Crypto Retail Payments

Since January, the stock market value of Square, Inc. SQ has risen in value by 148%; last year alone, the stock grew by 137%. As claimed by analysts, one should anticipate that if Square’s Cash App continues to perform, its SQ stock price could increase by 400% within 4 to 5 years, matching the capitalization of companies like PayPal. Undoubtedly, the firm has garnered the interest of investors. Most importantly, however, it has demonstrated an ability to generate profit, as evidenced by its Q2 earnings report for 2020, which revealed that Cash App’s gross profit grew by 167%, totalling to $281 million.

One explanation for CashApp’s popularity may be attributed to Bitcoin, as the platform allows its users to buy, sell, and transfer it. This is especially significant, as it has been consistently demonstrated that younger users’ favour this means of payment. As a result, Square’s Bitcoin gross profit jumped by 711%.

The list of features offered by Cash App goes on. One new idea currently under pilot testing would allow members of its ‘Cash App P2P Payments’ service to obtain small, short-term loans. 1000 users were offered such loans, ranging from $20 - $200, to be paid back within four weeks at a 5% flat interest rate. Whether successful or not, this attempt to explore possibilities by Square is an indicator of its willingness to expand their business model.

Offering small loans is expected to broaden Cash App’s lending efforts, and could eventually become a more complete financial payment solution when compared to PayPal. As such, Square Capital, the firm's lending arm, has been able to support merchants with micro-finance schemes for years, and is even approved to operate as a bank.

Just as important to analyse, however, are Cash App’s competitors. For instance, Coinbase offers its members the ability to borrow cash against their Bitcoin holdings, and is preparing an IPO to launch a waitlist for customers. Users will be able to borrow up to 30% of $20,000 of their Bitcoin holdings at an 8% APR, which is less competitive than the majority of competing crypto lending solutions. Yet given US regulatory limitations, this solution is expected to receive a lot of adoption, since there will be no special applications or credit checks required.

Other key competitors like Venmo and Zelle have furthered their respective lending programs, suggesting that they too see the potential of P2P payment platforms. Yet the main difference between Cash App and its competitors lies in its Bitcoin transactions and growing lending schemes.

BitGo - Institutional Digital Asset Custody Firm

BitGo operates in the crypto-sector as a security and digital-asset trust firm. Showing its intent to compete, they have recently announced the acquisition of “Excess Specie Insurance”, enabling users to purchase their own dedicated excess limits above BitGo’s $100 million insurance policy, ensuring an additional layer of protection to crypto holdings. Until recently, BitGo was covering up to $100 million worth of digital assets held in their accounts with the security firms, but is now backed by investors such as Goldman Sachs and Galaxy Digital Ventures.

One distinctive feature offered by BitGo is ‘Wrapped Bitcoin’, an ERC-20 token with a 1-1 peg to Bitcoin. It currently secures 46,000 BTC, worth more than $500 million through custodial patchwork. Yet the Palo Alto-based company hasn’t stopped there; its product portfolio has expanded to offer institutional digital asset lending services. BitGo is currently lending Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and stablecoins.

In its most recent endeavour, BitGo has applied to become a qualified crypto custodian in New York State. As such, they expect “a dramatic increase in market demand for its products and services from banks, pension funds, hedge funds and other fiduciaries”, according to an announcement published on August 25th.

Yet another area of growth within the industry are gateway platforms that enable merchants to accept cryptocurrency payments in exchange for their services.

Cyclebit; Accelerating Crypto Payment Solutions For Merchants

Cyclebit is a new firm that differentiates itself by offering zero-fee tools to retailers, allowing them to accept cryptocurrencies for in-store, online, and on-the-go purchases. Cyclebit hosts 20 of the most popular cryptocurrencies, connecting merchants to a broader customer base. The company is currently processing 1 million transactions a month, featuring a $1 billion annual turnover.

Cyclebit is one of the largest mPOS and e-commerce software providers in Eastern Europe, with a range of solutions being used by the largest insurance, logistics and retail businesses in Canada, USA, Thailand, Vietnam, Japan and Europe. Among the company's clients are online marketplaces, insurance and logistics companies like Ozon, Lamoda, Delivery Club, Pony Express, and DPD.

Included in its product suite is ‘Cycle-Online’, an innovative e-commerce solution for processing online crypto payments. This allows users to accept crypto payments anywhere in the world with full protection against volatility, chargebacks, and ID theft. Another solution is the tap2go application, designed to allow any Android smartphone with an NFC module to act as a terminal for receiving contactless payments. The app complies with PCI DSS Level 1 security standards, and thus has immense potential on CIS markets like Russia, where payments using Google Pay, Apple Pay and Samsung Pay now make up almost 80% of all contactless transactions.

Despite the many benefits of crypto payments for merchants and consumers, including limited fees, improved privacy, and diminished reliance on centralized authorities, there remain barriers to overcome.  Taxation or liquidity barriers for smaller-cap crypto projects are but two examples. What remains clear, however, is the enormous potential of the industry available for the players who enter first. For now, analysts wait in anticipation to see who will succeed.